Today, Vringo got the payout it was looking for: a 1.36 percent running royalty on US-based revenue from AdWords, Google's flagship program. US District Judge Raymond Jackson had already ruled last week (PDF) that the AdWords program, which was tweaked by Google after the Vringo verdict, wasn't "colorably different" from the old infringing program. He gave Google and Vringo one last session to hammer out a royalty rate, and when they couldn't, he went ahead and set it (PDF)—at almost exactly the rate Vringo was seeking.

Because some aspects of Google's revenue are opaque, it's impossible to know exactly what Vringo's win would be worth—and the company is a long way from cashing a check. But if the royalty rate were to be upheld on appeal, Google would surely have to pay hundreds of millions of dollars.

Whatever its worth, the victory will lift the hopes of patent-holding companies around the nation. A 2006 Supreme Court decision makes it almost impossible for so-called "patent trolls" to get an injunction that would knock a product out of commission; in the context of 2014 case law, a solid running royalty is a troll's dream come true.

Jackson followed the methodology laid out in an East Texas case in which Yahoo was found to infringe an online advertising patent owned by famed patent troll Acacia. The math is a little confusing. Today's order sets a royalty rate at 6.5 percent, on a "royalty base" of 20.9 percent, for an overall rate of 1.3585 percent. The royalty base is supposed to calculate what the Vringo-owned patents add to Google's search system.

"My reaction is pretty darn positive," said Jeffrey Sherwood, the lead lawyer on Vringo's trial team. In Vringo's view, the patents describe Google's ad-filtering system, which ranks various possible advertisements against each other in an auction. "They have a huge inventory of ads, and they have to get it down to the few that are the most relevant to their users. These patents describe a way to do it. And our position is, that's the way Google does it."

Jennifer Polse, Google's lead patent lawyer on the Vringo case, said that the company has already appealed the jury verdict and will appeal today's royalty award as well. "We believe strongly in our pending appeal in this matter, and we anticipate seeking Federal Circuit review of today's decision as well," said Polse in an e-mailed statement.

AOL, Gannett, Target, and IAC were named as co-defendants in the lawsuit for their use of AdWords. However, they've been indemnified in this case by Google, which is handling the litigation. Vringo brought the case under the name I/P Engine, a subsidiary it created to hold the two patents it purchased, numbered 6,314,420 and 6,775,664.

Vringo also sued Microsoft over ads in its Bing search engine. Microsoft settled that case in May, agreeing to pay $1 million plus 5 percent of whatever Google ultimately pays.

While publicly traded Vringo also has a "video ringtone" business, its financial statements describe its business as now being focused on patent assertion. The company has 28 full-time employees, has generated "no significant revenue to date," and had more than $10 million in legal expenses in 2012.

Redesigned system wasn't different enough

In today's order, Jackson awarded Vringo almost exactly the royalty it wanted. The company's expert argued for a royalty of 5 percent, and Jackson chose to award 4.6 percent. Vringo wanted a 40 percent increase on the rate because Google was found to be a willful infringer, and Jackson agreed that was reasonable. Knocking up 4.6 by 40 percent comes out to 6.44 percent, which the judge rounded up to 6.5.

That's significantly more than the 3.5 percent royalty that the jury suggested, which was "only a starting point in the analysis," wrote Jackson in today's order.

Even though there was no evidence of copying—Vringo admitted as much—a willfulness adjustment was still appropriate, the judge found. "Defendants' misconduct continues presently and Defendants have taken no remedial action," wrote Jackson. "In fact, they have redesigned a system that clearly replicates the infringing elements of old AdWords."

In last week's order, Jackson said that Vringo had proven infringement of both the old and new AdWords systems. While he didn't go into the details of changes Google made, he did write that all Google had done was apply the "LTV" or "long-term value" score at a different point in the ad-selecting process. It was basically the same: "[I]t is undisputed that new AdWords continues to use a candidate advertisement's LTV score that includes a predicted click-through rate in the process of choosing which advertisement will ultimately be shown to the individual performing the query."

Back-of-napkin math on the Vringo win

Google doesn't break out AdWords revenue clearly, but the company made $9.39 billion from "Google-owned sites" in the last quarter. The company will likely make more than $35 billion in 2013 in this area. The majority of that is surely AdWords, since estimates for YouTube range from $3.7 billion to $5.6 billion. Around 55 percent of the company's overall revenue comes from the US.

Accepting those estimates, an extremely rough calculation suggests US AdWords revenue is somewhere in the range of $15 billion to $18 billion annually. If that's right, it would place the Vringo royalty win somewhere in the realm of $200 million to $250 million annually. The patents expire in 2016, and Google is liable from November 2012, which is the date final judgment was entered after the trial.

And of course, if Google loses, it will owe interest on the whole shebang.

It's all pretty academic at this point; the numbers are clearly high enough that Google is likely to fight this tooth-and-nail through the appeal process, and the parties have agreed to stay earlier judgments until the appeal is resolved.

Still, a royalty award that could potentially push the billion-dollar mark—on old search technology that not even Vringo believes Google actually copied—could become additional fodder in the ongoing patent debates in Congress.

"The criticism doesn't relate to cases like this," he said. "There are situations where plaintiffs are filing cases that have no merit and extorting money out of defendants, because it's cheaper to settle. Obviously, in this case, we had a very good federal judge and jury come to the opposite conclusion."

"The criticism doesn't relate to cases like this," he said. "There are situations where plaintiffs are filing cases that have no merit and extorting money out of defendants, because it's cheaper to settle. Obviously, in this case, we had a very good federal judge and jury come to the opposite conclusion."

I still don't understand how you can patent math and algorithms. In the end this is all math.

The judiciary is now more of a liability than anything in this domain.

Agreed. I really hope that this is appealed again and Google points out that this is OBVIOUS stuff to anyone with programming experience. So obvious that it should not have been patent-able in the first place.

I will say it again and again.The patent system was made for the CREATOR to protect his or her patents.

We should not be able to sell or trade them. If a Patent selling must be done. The person who buys it - should only get exclusive license to the patent for 1 year. Then it becomes general public domain.

IMO, patents shouldn't cover anything that is a natural progression of technology. It could be argued that that is what obviousness means, but I don't believe the courts tend to see it that way. Targeted advertising isn't anything new; advertisers have been placing ads in places that are relevant to their target audience for a long, long time.

Going from targeting groups of people to individuals is a natural progression since the internet enables the tracking and identification of individuals just with cookies (which have been around since before the mid-90s). Any company putting R&D into online advertising would come up with a similar methodology in their implementation to one another, just as Google and Lycos did.

The judiciary is now more of a liability than anything in this domain.

The judiciary is the only one of the traditional three branches of government that's still doing anything at all. Some of the things they do are bad, but their interpretation of the old laws are sound. You want to blame someone, blame the lazy fucks that could actually change the law but can't be bothered to (a bill is making its way through Congress. This should have happened long ago).

Or blame Scalia. Not for anything specific to patent law, just because he's the mechanical cymbol-clashing monkey perched on the SCOTUS bench that always changes his mind about everything.

I will say it again and again.The patent system was made for the CREATOR to protect his or her patents.

We should not be able to sell or trade them. If a Patent selling must be done. The person who buys it - should only get exclusive license to the patent for 1 year. Then it becomes general public domain.

I don't see a problem to this... short patent lifespans keep the innovation ball rolling...

So, despite all those politicians blathering on about patent reform and patent trolls, crap like this continues to happen. I can't imagine for one minute that Google will simply absorb the price of the licensing costs, rather in the final analysis we as consumers lose via price hikes.

This is, in a sadly real sense, why we can't have nice things.

Message to politicians: talk is meaninglessly cheap, damn well do something!!

I will say it again and again.The patent system was made for the CREATOR to protect his or her patents.

We should not be able to sell or trade them. If a Patent selling must be done. The person who buys it - should only get exclusive license to the patent for 1 year. Then it becomes general public domain.

No, the patent system was made to stimulate innovation. A creator with the means to design a product but without the means to manufacture it deserves to be compensated for that, and a system like you're proposing greatly reduces the value of the patent, and thus, the compensation he would receive from selling it.

A better revision would be saying that you have to use the patent in some way (either produce a product or be able to show continued development.)

There are a few different fronts that Google can tackle this from.Of course, the appeals will be done.

Additionally, Google can petition the USPTO to reexamine the patents and try to get them invalidated.(whether or not Microsoft will join that petition is...well...up in the air since the settlement Microsoft has with Vringo is that they will pay an additional 5% of what Vringo gets from Google...somewhat of a jab at Google by Microsoft).

And the ultimate would be if Google does a hostile takeover of Vringo.(or even "another" party takes over Vringo)

I will say it again and again.The patent system was made for the CREATOR to protect his or her patents.

We should not be able to sell or trade them. If a Patent selling must be done. The person who buys it - should only get exclusive license to the patent for 1 year. Then it becomes general public domain.

No, the patent system was made to stimulate innovation. A creator with the means to design a product but without the means to manufacture it deserves to be compensated for that, and a system like you're proposing greatly reduces the value of the patent, and thus, the compensation he would receive from selling it.

A better revision would be saying that you have to use the patent in some way (either produce a product or be able to show continued development.)

I was going to post much the same, again.

I would probably eliminate "continue development" absent production, personally, to avoid "we have this patent, and we're still perfecting the mechanism, honest!" situations.

The judiciary is now more of a liability than anything in this domain.

Agreed. I really hope that this is appealed again and Google points out that this is OBVIOUS stuff to anyone with programming experience. So obvious that it should not have been patent-able in the first place.

It may be obvious that some sort of ranking algorithm can be used to decide which ad to display, but the specific algorithm that Google uses isn't obvious at all. If the patent is supposedly infringed by the particulars of Google's algorithm then an obviousness defense won't work.

To me, the better argument is that algorithms shouldn't be patentable at all.

In an interview today, Sherwood emphasized that debates in Congress over "patent trolls" don't apply to Vringo.

"The criticism doesn't relate to cases like this," he said. "There are situations where plaintiffs are filing cases that have no merit and extorting money out of defendants, because it's cheaper to settle. Obviously, in this case, we had a very good federal judge and jury come to the opposite conclusion."

There are a few different fronts that Google can tackle this from.Of course, the appeals will be done.

Additionally, Google can petition the USPTO to reexamine the patents and try to get them invalidated.(whether or not Microsoft will join that petition is...well...up in the air since the settlement Microsoft has with Vringo is that they will pay an additional 5% of what Vringo gets from Google...somewhat of a jab at Google by Microsoft).

And the ultimate would be if Google does a hostile takeover of Vringo.(or even "another" party takes over Vringo)

The first filing of the patent was re examined, and only certain claims of it, perhaps the one google was found infringing on. They all were upheld. The continuation filing of this lame patent, has two re examination requests, both nothing so far on them.

The first patent mentions "informons". Whatever. Patent the concept and not the implementation BS routine.

edit: while the patents do spell out specifically what to do, surely some form of ranking system can be prior art. Oh wait, attach a network to it and all of a sudden it's new and novel.

There are a few different fronts that Google can tackle this from.Of course, the appeals will be done.

Additionally, Google can petition the USPTO to reexamine the patents and try to get them invalidated.(whether or not Microsoft will join that petition is...well...up in the air since the settlement Microsoft has with Vringo is that they will pay an additional 5% of what Vringo gets from Google...somewhat of a jab at Google by Microsoft).

And the ultimate would be if Google does a hostile takeover of Vringo.(or even "another" party takes over Vringo)

Or, Google switches to a less efficient algorithm, the additional resources for which it can easily afford.

Or, Google reduces AdSense prices in order to reduce revenue paid to Vringo.

"The criticism doesn't relate to cases like this," he said. "There are situations where plaintiffs are filing cases that have no merit and extorting money out of defendants, because it's cheaper to settle. Obviously, in this case, we had a very good federal judge and jury come to the opposite conclusion."

I still don't understand how you can patent math and algorithms. In the end this is all math.

Not only that. Read the claims. If you can figure out from the claims what the invention does and how it does it, you're a better man (or woman) than me. Here's the thing: how do they get juries to agree that patents written in such obfuscatory language are infringed? The burden of proof is supposed to be on the plaintiff; he must prove that the defendant's technology infringes the patent, which means he must convince the jury that that obfuscatory handwaving means something specific and that specific thing is in the defendant's product.

God forbid you get a software engineer on the jury. He'll take a look at that and say, "That's way too vague. Nobody could code that because it's not properly specified what the program is supposed to do."

The judiciary is now more of a liability than anything in this domain.

The judiciary is the only one of the traditional three branches of government that's still doing anything at all. Some of the things they do are bad, but their interpretation of the old laws are sound. You want to blame someone, blame the lazy fucks that could actually change the law but can't be bothered to (a bill is making its way through Congress. This should have happened long ago).

Or blame Scalia. Not for anything specific to patent law, just because he's the mechanical cymbol-clashing monkey perched on the SCOTUS bench that always changes his mind about everything.

This is getting ridiculous enough that after a while, companies are going to outsource all their tech and tech decisions to another company that indemnifies them against any infringement. Then the sourcing company will be designed to go belly-up in bankruptcy the moment they are sued.

Now if we can just successfully hide the interlocking directorates......

I have to say, smooth move by Microsoft here. Pay essentially a pittance of a million bucks, make Google fight the fight and if Google wins, pay nothing more. If Google looses, pay 1/20th the damage that Google does, all while avoiding any legal fees. Pretty much a win-win for MSFT - cutting losses without feeding the troll unnecessarily.

edit: I'm just saying it was a good business decision on Microsoft's part, that's all.

The judiciary is now more of a liability than anything in this domain.

Agreed. I really hope that this is appealed again and Google points out that this is OBVIOUS stuff to anyone with programming experience. So obvious that it should not have been patent-able in the first place.

It may be obvious that some sort of ranking algorithm can be used to decide which ad to display, but the specific algorithm that Google uses isn't obvious at all. If the patent is supposedly infringed by the particulars of Google's algorithm then an obviousness defense won't work.

To me, the better argument is that algorithms shouldn't be patentable at all.

Apparently Google was found to not be copying the code directly. Not sure about Microsoft. But seems to me that if both Google and Microsoft came to the same solution as Lycos, all on their own, that is a pretty good argument for "obvious".

Then how many other ad placement systems are out there? I wonder if those infringe as well and if they do it accidentally because it's logically the best way to filter ads.

The judiciary is now more of a liability than anything in this domain.

The judiciary is the only one of the traditional three branches of government that's still doing anything at all. Some of the things they do are bad, but their interpretation of the old laws are sound. You want to blame someone, blame the lazy fucks that could actually change the law but can't be bothered to (a bill is making its way through Congress. This should have happened long ago).

Or blame Scalia. Not for anything specific to patent law, just because he's the mechanical cymbol-clashing monkey perched on the SCOTUS bench that always changes his mind about everything.

Try Googling stupid or frightening SCOTUS rulings to find even more of wonderful, and sound, law interpretations. Till then say hi to the NSA for me.

No, that's the Executive branch intruding onto judicial space with something that only looks judicial. The main problem with the 4th Amendment is the last good SCOTUS case on it didn't implicate the modern world, and its conclusions appeared just under those now-anachronistic circumstances. Everyone now knows the 3rd Party Doctrine is a great big pile of shit that's been interpreted to mean the government can ask for whatever it wants without a warrant (rather than another way to read the rule, that companies can disclose information at will. Nothing in there says an agency can affirmatively ask for it, though. Making that distinction could save the 3rd Party Doctrine while making it sensitive to modern issues.

And thank you for citing bad SCOTUS decisions. That nicely dovetails from my OP assessment of Scalia.

ok folks. lets get something straight here. one of the inventors of the patents is on the board of directors of vringo.

Ken Lang look it up. He and Kosak invented the patents when at lycos. They were sold and then he bought them back.

So they are not trolls.....

Google however is buying patents all the time to protect themselves and persecute others. They stole Lang's patents and used them for years without permission making hundreds of billions of dollars.

Vringo and Lang deserve far more than what they have been awarded. Google it two faced and lies about this case as well.

The USPTO has already reviewed these patents and they are good patents. They are solid. Google has no chance of winning on appeals. None. They will have to pay several hundred million more maybe as much as 2 billion once the appeals are all heard as well.

Frigging thieves should just pay what they owe. They had no right to use them without permission in the first place.

They claim their motto is do no evil; yet they steal others inventions and refuse to pay when they are caught red handed.

then they make up a farce about a workaround which is nearly the same as what they lied about the first time around.

Arrogance like that needs to be punished and punished severely. No respect for the property of others or for the law either. It is a disgusting thing they have tried to do. They should be making things right not furthering the lie.

You should really pick a different screen name than one you use elsewhere if you're going to astroturf like this.

edit: for those that are unaware, the vringo story has been especially surrounded by the kind of thing that propped up SCO for so long, people just so moved by the facts that come out of the woodwork to write blogposts and techcrunch articles about the the amazing story of Ken Lang and the little patent troll that could. I'm not going to link to any of them, but you can find a bunch of them in the original ars coverage of the lawsuit. Some of them, at least, had the integrity to disclose their investment in Vringo. Not all of them.

ok folks. lets get something straight here. one of the inventors of the patents is on the board of directors of vringo.

Ken Lang look it up. He and Kosak invented the patents when at lycos. They were sold and then he bought them back.

So they are not trolls.....

Google however is buying patents all the time to protect themselves and persecute others. They stole Lang's patents and used them for years without permission making hundreds of billions of dollars.

Vringo and Lang deserve far more than what they have been awarded. Google it two faced and lies about this case as well.

The USPTO has already reviewed these patents and they are good patents. They are solid. Google has no chance of winning on appeals. None. They will have to pay several hundred million more maybe as much as 2 billion once the appeals are all heard as well.

Frigging thieves should just pay what they owe. They had no right to use them without permission in the first place.

They claim their motto is do no evil; yet they steal others inventions and refuse to pay when they are caught red handed.

then they make up a farce about a workaround which is nearly the same as what they lied about the first time around.

Arrogance like that needs to be punished and punished severely. No respect for the property of others or for the law either. It is a disgusting thing they have tried to do. They should be making things right not furthering the lie.

What invention? Oh, you mean where they do it on the internet? how novel. So, even Vringo says that they did not copy, yet here you are stating that they stole from Vringo.

Ridiculous. Even if the patent was valid and Google guilty of infringement, the value being placed on patents is horribly out of proportion with the value they actually contribute to a product.

In this case, no. The damages case was structured very well and focused on the value of the invention. The royalty base was based on a determination that the patented invention contributed a huge amount to Google's search revenues--more than 20 percent. [We'll see if that incremental benefit determination withstands an appeal.]

In other words, the court (judge/jury) determined that without the invention defined in Vringo's patents Google would have made 20 percent less revenue. Vringo was awarded 3.5 percent of this "20 percent" increase at trial. The royalty rate was then increased to 6.5 % post-judgment as is standard.

Litigated royalty rates determinations are supposed to simulate a priori negotiations. So, suppose that you were the owner of the technology claimed in the Vringo patent and approached (before Google's infringement began) Google with the proposition that if it implemented your invention its revenues would increase by 20 percent. What piece of that action would you want? 3.5-6.5 percent of the ADDED revenue seems fair, right?

In any event, Google's got a tough case on its hands. We'll see what happens on appeal. Stay tuned...